Starting a pension in Ltd company

dunstonh

Not sure if my info is out of date, but historically there is a difference between "single payments" and "regular payments" from the pension provider point of view, and "regular payments" are more admin and sometimes result in higher charges.

That differential ending in the lead up to 2001 (by around 1999, pensions had to be stakeholder friendly for new business)

However, very many directors do make a single payment late in their business year as they have a better idea of what they can afford to pay in at that time.

garybarlowsbeard

Paying in regularly would be better from an investment POV though in terms of smoothing any dips?

ComicGeek

In terms of ease of running a business, we find it simpler to have a regular payment each month, and then look at the end of the year to see whether we can top this up with an additional lump sum payment to try and get as close as possible to the maximum £40k contribution each year. Cash flow is key here, as while pension payments reduce corporation tax payments you still need to find the cash for both! There's also a trade off against available dividend payments as well, as it reduces post tax profits, so easier to do this analysis at the end of the financial year when you know what you've got available.

I'm personally not worried about dips over the course of the year, as I've probably got nearly 30 years before I retire anyway.

We started off at £500 per month 9 years ago, but as we have a fairly consistent business turnover and expenses we've been able to steadily increase this to £1500 per month within our standard overheads - we then pay lump sums of £8k-22k at the end of the financial year depending on profitability.

garybarlowsbeard

Sounds like business is doing well then!

ComicGeek

Long hours, but it's been worth it. We're not going to be millionaires or retire early, but we have flexible hours and treat ourselves to a new car every 3-5 years.

Key thing I've worked hard on is building pension contributions into our baseline costs, even if that meant lower dividends. Always too easy to spend up to your salary, and forget about pensions.

TheTracker

garybarlowsbeard wrote: »

A while ago I was advised the following in terms of the best way to fund it. Is this still true/accurate (I expect some of the exact figures may have changed but it's the theory I'm questioning)?

Assume that you want £1,000 in your pensions

You would need to pay yourselves an increased amount of money either
as an additional dividend, salary or direct form the company

Salary option

Salary of £1,176

Employer NI at 13.8% =£162

Employee NI at 12% = £141

Employee tax at 20% = £235

Net pay = £800

Paid into pension with additional tax reclaim added by pension
provider = £1,000

TOTAL COST TO COMPANY = £1,338

Dividend option

Use Profits to pay addition £800 dividend

Profits subject to corporation tax at 20%

Amount received by you =£800

Paid into pension with additional tax reclaim added by pension
provider = £1,000

TOTAL COST £1,000

Direct payment by company

£1,000 paid into your pension as a business expense

Reduces taxable profit by £1,000

Saving corporation tax of 20% = £200

COST TO THE COMPANY IS £800

Surprisingly simple way to check this each year. Just google "optimal salary" and up pop many accountants letting you know the same thing, the most tax efficient way for a director to extract profit from a company based on current year tax regimes.

atush

When you say 'We' do you mean just the business, or do you have a spouse? Who could also have an execcutive pension with the firm (if you give them a 'job'. ie make them a director?

garybarlowsbeard

I mean we, my business partner and me. I have a wife but she's employed full time and I'm not into avoiding/evading tax with anything too complex.

LHW99

I mean we, my business partner and me. I have a wife but she's employed full time and I'm not into avoiding/evading tax with anything too complex.

Please don't assume that "employing your wife" automatically means tax avoidance. Many wives / spouses are employed within small businesses and work with their OH because they have skills and can add to the business proposition.

atush

For instance, although she works she might help you with things, so could be a co owner/director.

I am not saying to lie, but usually spouses help out with small companies - everything from stock taking, to helping with the accounts, to marketing, to sourcing things etc.